Latest news with #HLIBResearch
The Star
4 hours ago
- Business
- The Star
Land acquisition in Melaka is yield-accretive for Hektar-REIT
PETALING JAYA: The proposed acquisition of a RM40mil land in Melaka by Hektar Real Estate Investment Trust (Hektar-REIT) as part of a 30-year leaseback deal is yield-accretive in nature and comes with an attractive valuation. Hong Leong Investment Bank (HLIB) Research is positive on the deal, adding that the triple net lease arrangement significantly de-risks the investment by transferring property expenses directly to the tenant. Last Friday, Hektar-REIT announced a related-party transaction to purchase 41.8 acres of leasehold land from KYS College. The acquisition is expected to be completed by the fourth quarter of financial year 2025 (4Q25). The land in Mukim Durian Tunggal, District of Alor Gajah will be leased to KYSA Education Sdn Bhd, the operator of Kolej Yayasan Saad Melaka (KYSM), via a 30-year triple net lease. It featured a 10% rental escalation every three years and an option for a further 30-year extension, potentially continuing until the leasehold expiry. To recap, in July 2024, Hektar-REIT completed the acquisition of KYSM for RM148.5mil, making it the first educational asset in Hektar-REIT's portfolio. The RM40mil acquisition announced last Friday would be financed via a mix of 60% debt (RM24mil) and 40% internal funds (RM16mil), which is set to raise gearing to 42.7% from 41.8%. 'Baking in an estimated 1% manager's fee for FY26, and assuming a 4.93% borrowing cost, this acquisition is poised to lift net profit by 2% and 3.4% in FY26 and FY27 respectively,' according to HLIB Research. On the valuation, HLIB Research said the land purchase accounted for 2.8% of Hektar-REIT's total asset value as of 1Q25. 'It has an initial net property income (NPI) yield of 5.3%, which is higher than the REIT's forecast FY26 portfolio NPI yield of 4.9%. 'Furthermore, the acquisition's implied valuation of RM22 per sq ft is notably below this year's median land transaction price of RM28 per sq ft, indicating a 21% discount,' stated the research house. HLIB Research has maintained its 'hold' call on Hektar-REIT, but raised its target price to 46 sen per unit. The higher target price was on the back of a rolled-over FY26 distribution per unit at a 7.7% yield. This stemmed from a lower 10-year Malaysian Government Securities (MGS) assumption of 3.7% (from 4%), following a 25-basis-point overnight policy rate cut, and is derived from 0.25 standard deviation above the five-year historical average yield spread between Hektar-REIT and the 10-year MGS yield. 'Beyond the financial metrics, this acquisition is strategically beneficial as it diversifies Hektar-REIT's portfolio away from its traditional retail focus and into the education segment,' added HLIB Research.
The Star
7 hours ago
- Business
- The Star
Frontken expected to report solid 2Q results
HLIB Research said favourable foreign-exchange trends and sustained strong demand from its key Taiwanese clients will drive the company's growth. PETALING JAYA: Frontken Corp Bhd , a provider of support services to the semiconductor industry, is expected to record a strong financial performance in its second quarter of 2025 (2Q25) on strong tailwinds from macro factors, analysts say. Favourable foreign-exchange trends and sustained strong demand from its key Taiwanese clients will drive its growth, said Hong Leong Investment Bank Research (HLIB Research). Frontken stands to benefit from the surge in new semiconductor fabs globally, notably in the United States, Singapore and India, while the weaker ringgit against the Taiwanese dollar works in its favour, the research house said. The Taiwanese dollar appreciated against the ringgit by 4% in 2Q25 from the previous consecutive quarter. But a dilution in the company's share base is expected to cap share prices for the time being. 'While we remain positive on Frontken's growth prospects, a potential sizeable increase in share count of an additional 32% from a warrant conversion that expires in May 2026 remains an overhang that could limit upside in the near term,' the research house said. 'With Frontken's share price now above the RM4 warrant exercise price, the 510 million in-the-money warrants (32% of the current share base) could present a near-term overhang. 'Sustained re-rating beyond the current price range would require strong catalysts such as unexpected strong earnings delivery, clear expansion plans or entry into new markets to absorb incremental supply,' the research house added. HLIB Research also said Frontken is holding some US$30mil in cash that was previously intended for a potential US acquisition, which could result in up to some RM10mil in non-core, unrealised forex losses in 2Q25. The weaker ringgit bodes well for Frontken's key subsidiary, Ares Green Tech Corp, which primarily bills its customers in the Taiwanese dollar, the research house said. 'This contrasts with other listed Malaysian peers in the technology sector that are affected by the stronger ringgit due to their US dollar-based export sales,' it said. HLIB Research said although the planned US acquisition did not materialise, the country's market remains on Frontken's radar, with management currently exploring a potential joint venture or collaboration with a US-based precision cleaning company to support Taiwan Semiconductor Manufacturing Co Ltd's newly established fabs. 'In the near term, cleaning services are still handled in Taiwan via air freight, which remains cost-effective relative to the high operating costs in the United States. However, this arrangement is unlikely to be sustainable, as it runs counter to US localisation and self-sufficiency objectives.' HLIB Research left its forecasts for Frontken unchanged, maintaining its 'hold' call with an unchanged target price of RM4, based on a target price-earnings ratio of 35 times earnings for next year.
The Star
a day ago
- Business
- The Star
Southern Cable powers up production, earnings
PETALING JAYA: Southern Cable Group Bhd is poised to capture more market share in the power cable business amid the growing demand for power and a recent exit of a major competitor, says Hong Leong Investment Bank Research (HLIB Research). The research house said in a report that it is positive about the group's outlook, given Southern Cable's leading position in the power cable business in Malaysia. 'We believe expansion of Malaysia's power infrastructure is set to trend higher, supported by Tenaga Nasional Bhd 's (TNB) continued efforts to enhance grid resiliency, the ongoing expansion of national power supply and strong electricity demand from energy-intensive users such as data centres,' the research house noted. Furthermore, listed power-infrastructure players with access to capital and economies of scale are best positioned to capitalise on this multi-year upcycle, the research house added. HLIB Research, which visited Southern Cable's plant sites at Lot 20, 21 and 22 in Kuala Ketil, Kedah, said the group is planning on capacity expansion. Lot 22, which is adjacent to the group's existing plant, is currently undergoing civil and structural works, with machinery installation targeted by the fourth quarter of this year (4Q25). This facility will house the group's second aluminium furnace, supporting both TNB-related demand and exports to the United States. The new furnace will expand the group's aluminium furnace capacity from 21,600 tonnes per year to 63,600 tonnes. Once Lot 22 is operational, construction work on Lots 20 and 21 will begin, with completion targeted by end-2026. HLIB Research noted that the expansion is expected to raise the group's capacity to 65,000km of cable per year versus 49,900km in 1Q25 over the next two years. On the product front, Southern Cable is also on track to launch its 1,600 square milimetres (mm²) 132 kilovolt (kV) cable by next year, which will offer higher transmission capacity versus the current 800mm² specification. In addition, demand from its US customers remained strong, with monthly orders of up to 100 containers versus the current estimated 50 containers. Separately, Southern Cable is in the process of obtaining certification from global private safety company Underwriters Laboratories for three additional industrial cables, which offer higher margins. Looking ahead to 2Q25, HLIB Research expects the group to report stronger quarter-on-quarter and year-on-year earnings, driven by the full ramp-up of its additional 3,000km per year in cable capacity that was commissioned last quarter. The group should also benefit from normalised production levels following a seasonally weaker 1Q25 amid festive holidays. Additionally, the transition to a new long-term TNB supply contract is expected to support a modest margin rise. The research house added that earnings momentum is likely to accelerate in the second half of this year, underpinned by the commissioning of an additional 2,000km per year capacity and the start of 132kV cable deliveries for the East Coast Rail Link project. HLIB Research has a 'buy' rating on the stock with an unchanged target price of RM1.90 per share.
The Star
a day ago
- Business
- The Star
OSK diversification plan pays off
HLIB Research said the acquisition offers risk diversification benefits by reducing reliance on a single segment in consumer financing. PETALING JAYA: Hong Leong Investment Bank (HLIB) Research remains positive on OSK Holdings Bhd 's prospects, underpinned by its fast-growing private credit and cables segments, which are driving earnings and diversifying the group's income base beyond property. OSK had announced the acquisition of Wilayah Credit, a motorcycle financing company, which currently has a loan portfolio of about RM40mil. Post-acquisition, OSK can unlock growth by leveraging on its stronger funding capacity. HLIB Research said the acquisition also offers risk diversification benefits by reducing reliance on a single segment in consumer financing, allowing the group to build a more balanced and robust financing portfolio. 'We believe investors continue to undervalue the group's private credit segment. 'For perspective, Qualitas Ltd, which is a listed Australian firm specialising in private credit investments in real estate, is expected to deliver a financial year 2024 (FY24) to FY27 compounded annual growth rate (CAGR) of 25.1% and currently trades at 23.9 times FY26 price earnings ratio, based on consensus estimates. 'Similar to Qualitas, OSK also has private credit exposure in Australia primarily in the real estate segment that makes up 28% of the loan portfolio. In fact, compared wth Qualitas, OSK's loan portfolio has a more balanced and diversified mix both geographically and across customer segments, giving it the advantage of risk diversification,' the research house added. OSK's private credit segment demonstrated a strong track record, delivering a robust six-year pre-tax profit CAGR of 25.1% from FY18 o FY24, which is on par with Qualitas expected growth rate. 'Having grown to a meaningful scale, the segment is well positioned to gain increasing investor visibility as it emerges as a key earnings driver for the group moving forward,' HLIB Research noted. The cables segment is expected to post strong earnings in the second quarter of 2025, supported by the completion of major deliveries to a utility company.
The Star
2 days ago
- Business
- The Star
Recovery in sales volume to propel Nestle
PETALING JAYA: Nestle (M) Bhd is poised for a stronger second half of 2025 (2H25), underpinned by easing raw material prices, stable margins and a steady recovery in sales volume, following a challenging year marked by cost pressures and boycott-related disruptions. According to Maybank Investment Bank (IB) Research, Nestle's sales volume has shown progressive recovery in 1H25 and this remains its key focus in 2H25. The research house raised its 2025 to 2027 earnings forecasts by up to 22%, citing 'a clearer route to recovery in relation to its brand image and cost pressures from raw materials.' Maybank IB Research said that Nestle's second-quarter revenue rose 10% year-on-year (y-o-y), driven by price hikes and systematic sales volume recovery. It added that 'the group is on a stronger footing to enhance market competitiveness and rebuild market share across its product categories'. Meanwhile, CGS International Research remained cautious, citing stretched valuations. 'We believe valuations are rich at 35.8 times 2025 price-earnings ratio with a 2.4% 2025 dividend yield,' the research house said, maintaining a 'reduce' call with a target price of RM78. It acknowledged a volume recovery in 2Q25 following the easing of boycotts and noted that 'export revenue growth was helped by growing demand for halal products in both existing and new markets'. It added that management saw stability in margins supported by 'ongoing hedging efforts, and recent easing in cocoa and coffee prices'. Hong Leong Investment Bank (HLIB) Research pointed to a mixed outlook, with operational efforts offsetting persistent external challenges. 'The group continues to navigate rising commodity costs through a steadfast focus on operational efficiency, cost savings initiatives, and greater digitalisation,' it said. Despite selective price increases, HLIB Research cautioned that 'the ongoing boycott against Western-affiliated brands continued to dampen demand' and is unlikely to fully revert soon. Nonetheless, the the research house highlighted that product innovation remained a bright spot, with launches such as Nescafe Coffee Concentrate and Kit Kat 3-in-1 reinforcing the group's pivot toward health-focused and convenience-led offerings. HLIB Research reiterated its 'hold' rating with an unchanged target price of RM80. CIMB Research also held a steady view, with no changes to its forecasts or 'hold' rating. It noted that 'Nestle does not intend to implement major selling price adjustments, opting instead to focus on maintaining affordability in view of the current subdued consumer spending environment.' The research house underscored Nestle's long-term growth strategy centred on innovation, including the 'world's first drinkable KitKat' as aligned with global priorities. 'Gross profit margins are expected to remain stable in 2H25,' it added, citing digitalisation and efficiency initiatives as cushions against cost pressures. TA Research struck an optimistic tone, raising its earnings forecasts by up to 7.6% and its target price to RM102.80. It attributed the gains to higher sales assumptions and robust brand investments. 'Operating expenses rose 4% y-o-y mainly attributed to higher marketing investments,' the research house noted, pointing to promotional campaigns tied to new launches and Milo's 75th anniversary. It said the efforts are supportive of top line growth, with the potential to strengthen brand equity, enhance customer loyalty, and reinforce Nestle's market leadership.
